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Scottish Friendly secures growth



Type: With-profits bond.

Aim: Growth.

Minimum investment: Lump sum £3,000.

Bonus rate: 5.25 per cent.

Allocation rates: £3,000 – £9,999 95 per cent, £10,000 and above 96 per cent.

Charges: Implicit.

Options: 2.5 per cent bonus on 10th anniversary.

Commission: Initial 5.25 per cent.

Tel: 0800 834428.

The panel: Keith Lewis, Proprietor, Hartley Greatbatch & Co,
Mike Hughes, Director, Eccleston Park Financial Planning,
Alan Lakey, Partner, Highclere Financial Services.

Flexibility 5.0

Bonus rate 5.7

Company&#39s reputation 5.5

Past performance 5.0

Commission 5.5

Product literature 5.7

Scottish Friendly Assurance has introduced another issue of its growth and security bond, which invests in the Scottish Friendly with-profits fund. Investors receive an annual bonus, currently 5.25 per cent, and a loyalty bonus of 2.5 per cent will be added on the 10th anniversary of the investment.

Looking at how the bond fits into the market Lewis says: “Quite generally. There is very little to set it apart from other life offices, except the minimum investment which is £3,000 and is quite low these days. Its image as a friendly society will help.” Lakey says: “This is getting to be a fairly crowded market. &#39Oh, another with-profits bond&#39, many will say.” Hughes says: “It fits adequately in a highly competitive field dominated by the big boys.”

Identifying the type of client the bond would suit Lewis says: “In today&#39s market, in general it would suit all investors. Those seeking low-risk growth. The retired and elderly people could also be interested. It could attract a smaller amount of investors who are looking to invest for children.” Lakey says: “Primarily those with less than £5,000 who wish to invest in such a bond.” Hughes highlights low-risk investors who want to expand from deposit and national savings.

Discussing the marketing opportunities the bond may provide, the panel are in agreement. Lewis sees very little marketing opportunities while Lakey says: “It offers very little. What&#39s new about it?” Hughes thinks it provides no opportunities that are not already being offered by other products.

Discussing the strong points of the bond Lewis says: “Other than being a friendly society and the minimum investment of £3,000, very little.” Lakey says: “The minimum investment does have its uses and the high fixed-interest element may appeal to the cautious.” Hughes is more critical. He says: “It offers nothing new in a competitive field.”

Examining the bonus rate of the bond Hughes says: “It is average but the minimum top-up of £500 could be very useful, especially for gift plans for children.” Lewis says: “It is quite poor, it is below average compared to other market leaders in the sector.” Lakey says: “It offers quite a reasonable rate, but these rates are often illusory as the market value reduction can erode gains very quickly.”

Identifying the disadvantages of the product Hughes says: “There is a lack of name awareness and the small size of the company could reduce equity exposure in the longer term.” Lakey says: “Small mutuals appear doomed. The low equity content mitigates against growth in the longer term.” Lewis points out that the allocation rate for investments of £10,000 and above is poor compared with other products in the market. He also says it has a below average performance ranking using Reuters research.

Looking at the product&#39s flexibility Lakey says: “Again, there is nothing new here. It&#39s been done before by bigger fish.” Lewis says: “It offers very little flexibility, and the availability of a bonus of 2.5 per cent on the 10th anniversary is only average compared with some other life offices.” Hughes rates the flexiblity of the product as average.

Assessing the company&#39s reputation Hughes says: “It is a small company with a low market awareness factor.” Lakey says: “To the general public, it is an unknown quantity. It has no name awareness whatsoever.” Lewis says: “On the whole, barely a pass. It has below average performance and it is not generally regarded as a big player in the market.”

Discussing the company&#39s past performance record Lakey says: “It shows up very well, particularly over the shorter term.” Hughes says: “The company has had a with-profits bond since 1998 and published bonus rates have been average. No details of terminal bonus rates were obtainable. The 10-year bonus is an interesting concept but is not really exploited. Lewis feels it is only average at the very best on the with-profit side. He regards its other funds, such as the managed and gilt funds, as better than the with-profits fund.

Highlighting the likely competitors the bond could face, Hughes goes for all other companies offering with-profits bonds. Lewis considers Standard Life, MGM Assurance and Friends Provident as strong competitors, although he points out that Friends Provident has a higher minimum investment than Scottish Friendly at £4,000. Lewis feels the commission is fair and reasonable. Although Hughes agrees, he thinks a renewal option would be more attractive.

Looking at the product literature, Lewis thinks it is quite well presented and he likes the larger print it uses. Lakey says: “It is basic, with not enough information.” Hughes is the most critical. He says: “The literature is generic, bland and boring. Details of the company are minimal. What about its size, history and assets for a start?”

Summing up, Lewis says: “There is very little to excite in this product. Its past performance is generally average and it is a small company too. How will it compete with the bigger life offices such as Standard Life, Norwich Union and Liverpool Victoria?”

Hughes concludes: “The absence of an early exit penalty makes the product attractive, but this could be its downfall. The asset allocation is identical to NFU, another small player, which also has no exit charge. The company will attract business but not as a volume player, which I suggest is its business objective.”


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